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Managerial accounting

1. The Old Van Rental Company has 6 vans available for rent late on Wednesday night when the office gets a call from a small group of tourists wishing to rent 3 vans for the next day (one day rental). The daily rate that the rental company charges is $40 per van. However, the group is willing to pay just $30 per van. The company has fixed costs of $ 200,000. What will be the incremental revenue generated if the rental company decides to accept the price offered by the group?
A) $10
B) $30
C) $90
D) $ 0

2. In most cases, which of the following costs are likely to be variable costs?
A) advertising to promote the product
B) depreciation of assets
C) space rental costs
D) materials used in production

3. The Sarbanes - Oxley Act requires companies to:
A) report instances of child labor law violations
B) implement activity-based cost accounting and enterprise resource planning systems
C) certify to shareholders that they have not invested in derivatives
D) report on the existence and reliability of their internal controls as they relate to their financial statements

4. Which of the following statements about using incremental analysis in decision making is true?
A) measurement is centered on meeting incremental changes in quality standards
B) incremental analysis requires a calculation of changes in both cost and revenue
C) sunk costs should be included in the analysis
D) controllable costs are always considered indirect costs

5. Budgets are essential tools for:
A) avoiding sunk costs
B) producing financial statements that comply with GAAP
C) achieving planning and control
D) maintaining a high leverage ratio

6. In managerial accounting, a key idea is that 'you get what you measure'. This idea refers to:
A) the need for a single measure of profitability
B) a growing focus of regulators on executive accountability
C) the notion that how firms measure performance affects how managers behave
D) changing ethical standards in a dynamic business environment

7. The Great View Shop sells an inexpensive, but high-quality, camera for $ 125. The firm has fixed costs of $ 150,000 and the firm's contribution margin amounts to 60% of revenue per unit. How many units must the firm sell to breakeven?
A) 700 units
B) 1,800 units
C) 1,900 units
D) 2,000 units

8. Small Industries has fixed costs of $ 100,000 and breakeven sales of $ 800,000. What is the firm's estimated pre-tax profit at $1,200,000 sales?
A) $75,000
B) $50,000
C) $25,000
D) $ 5,000

9. Breakeven analysis assumes that over the relevant range:
A) Unit revenues are nonlinear.
B) Unit variable costs are unchanged.
C) Total costs are unchanged.
D) Total fixed costs are declining.

10. When a company is operating at the breakeven point, the contribution margin is equal to total:
A) Variable costs.
B) Sales revenue.
C) Overhead costs.
D) Fixed costs.

11. The New Company has two products (Product A and Product B) with the following profile as far as contribution margin:

Selling Price $15 $10
Variable Cost $ 12 $5
Unit CM $3 $5
Sales Mix 60% 40%

Company's total fixed costs equal $76,000. Using a weighted average CM, what is the company's breakeven point in units?
A) 18,000 units
B) 20,000 units
C) 22,000 units
D) 31,000 units

12. Generally, firms with high operating leverage are:
A) more likely to have lower selling prices per unit.
B) considered more risky than firms with low operating leverage.
C) more likely to have low levels of fixed costs.
D) dependent on declining variable costs to be profitable.

13. Manufacturing overhead is allocated to products based on the number of machine hours required. In a year when 20,000 machine hours were anticipated, costs were budgeted at $125,000. If a product requires 7,000 machine hours, how much manufacturing overhead will be allocated to this product?
A) $41,667
B) $43,750
C) $1,120
D) $50,000

14. Conan Company's monthly activity level ranged from a low of 17,000 units in May to a high of 26,000 units in October. Average production was 20,000 units per month. Utilities cost was $8,250 in May and $10,500 in October. The variable utility cost per unit, to the nearest cent, is:
A) $0.49.
B) $0.47.
C) $0.25.
D) $0.40.

15. ABC Diner has a contribution margin ratio of 16%. If fixed costs are $176,800, how many dollars of revenue must ABC generate in order to reach the break-even point?
A) $282,880
B) $1060,800
C) $208,476
D) $1,105,000

16. Jones Company manufactures widgets. Old Ham Company has approached Jones with a proposal to sell the company one of the components used to make widgets at a price of $100,000 for 50,000 units. Jones is currently making these components in its own factory. The following costs are associated with this part of the process when 50,000 units are produced:

Direct material $44,000
Direct labor 20,000
Manufacturing overhead 60,000
Total $124,000

The manufacturing overhead consists of $32,000 of costs that will be eliminated if the components are no longer produced by Jones. The remaining manufacturing overhead will continue whether or not Jones makes the components.
What is the amount of avoidable costs if Jones buys rather than makes the components?

17. Paul's Pizza produced and sold 2,000 pizzas last month and had fixed costs of $6,000. If production and sales are expected to increase by 10% next month, which of the following statements is true?
A) Total fixed costs will decrease.
B) Fixed cost per unit will decrease.
C) Total fixed costs will increase.
D) Fixed cost per unit will increase.

18. In an activity-based cost system, an overhead cost system would first be allocated to __________, and then allocated to __________.
A) a product; an activity pool
B) a product only
C) an activity pool; a product
D) an activity pool only

19. A company has a total cost of $50.00 per unit at a volume of 100,000 units. The variable cost per unit is $20.00. What would the price be if the company expected a volume of 120,000 units and used a markup of 50%?
A) $75.00
B) $62.50
C) $67.50
D) There is not enough information in the problem to answer

Use the following to answer questions 20-22:
Benz Company sells a single product that has variable costs of $10 per unit. Fixed costs will be $850,000 across all levels of sales shown.

Units Sold Price per unit
90,000 $33
100,000 $31
110,000 $30
120,000 $29
125,000 $28

20. What price should Benz charge to maximize profits?
A) $29
B) $33
C) $28
D) $31
E) $30

21. What price would Benz charge to maximize revenues?
A) $30
B) $31
C) $28
D) $29
E) $33

22. What, if any information given was not relevant to the profit maximization decision?
A) The variable costs per unit
B) The total fixed costs
C) All of the information was relevant
D) The selling prices
E) The total quantities demanded

Use the following to answer questions 23-25:
A company's market for the Model 55 has changed significantly, and it has had to drop the price per unit from $199 to $135. There are some units in the work in process inventory that have costs of $150 per unit associated with them. The company could sell these units in their current state for $100 each. It will cost the company $15 per unit to complete these units so that they can be sold for $135 each.

23. Which of the following is the amount of sunk costs in this problem?
A) $100 per unit
B) $135 per unit
C) $150 per unit
D) $199 per unit

24. A new employee looks at the analysis and exclaims, 'We'll lose money with either of these alternatives! Let's just throw these units in the trash!' Suppose the alternative to trashing is choosing the more profitable of the two alternatives (that the new employee looked at and did not like). What effect will the trashing option (that the new employee wants) have on net income?
A) Net income will decrease by $120 per unit for each unit discarded.
B) Net income will increase by $15 per unit for each unit discarded.
C) It will have no effect on net income.
D) Net income will decrease by $199 per unit for each unit discarded.

25. When the incremental revenues and expenses are analyzed, the company is better off by
A) $15 per unit if the sell the units in their current state.
B) $35 per unit if they sell the units in their current state.
C) $20 per unit if they complete the units.
D) $135 per unit if they complete the units.

26. NoIdea Records Company uses activity-based costing. The company produces CDs and DVDs. The estimated costs and expected activity for each of the activity pools follow:

Activity Estimated Expected Activity
Cost Pool Cost DVDs CDs Total
Activity 1 $31,350 8,000 3,000 11,000
Activity 2 $23,800 5,000 2,000 7,000
Activity 3 $55,200 8,000 4,000 12,000

Total costs which would be charged to DVDs would be:
A. $110,50.
B. $36,800.
C. $76,600.
D. $59,850.

27. SnowBird Company produces two products, X and Y. The annual production and sales of product X and Y are 1,200 and 750 units, respectively. The company has traditionally used direct labor hours to apply manufacturing overhead. Product X requires 0.6 labor hours per unit and product B requires 0.4 labor hours per unit. The company has decided to utilize activity based costing with three cost pools. Estimated costs for each pool are as follows:

Activity Overhead Expected Activity
Cost Pool Costs Product X Product Y Total
Activity 1 $72,075 225 210 435
Activity 2 $50,640 1,000 375 1,375
General Factory $96,042 60 75 135
Total $218,757

The predetermined overhead rate for activity 1 using activity based costing system is closest to:
A. $490.86.
B. $320.24.
C. $343.20.
D. $165.66.

Use the following information for questions 28 - 29.
RossSignal Company's market for the Model 225CM ski has declined, and RossSignal has had to drop the price per pair from $795 to $375. There are some pairs in the work in process inventory that have costs of $450 per pair associated with them. RossSignal could sell these skis in their current state for $300 per pair. It will cost RossSignal $30 per pair to complete these skis so that they can be sold for $375 per pair.

28. When the incremental revenues and expenses are analyzed, the company is better off by
A. $375 per pair if they complete the units.
B. $45 per pair if they complete the units.
C. $30 per pair if the sell the units in their current state.
D. $75 per pair if they sell the units in their current state.

29. Which of the following is the amount of sunk costs in this problem?
A. $795 per pair
B. $450 per pair
C. $375 per pair
D. $30 per pair

30. Picayune Company estimates that ordering costs are $6.00 per order, picking costs are $4.50 per unique item ordered, packing costs are $0.075 per item, and return costs are $135.00 per return. A customer orders $30,000 worth of goods with direct costs of $24,000. The customer places 200 orders, orders 240 unique items, 1600 items, and makes 22 returns. What is the profit (loss) on this customer?
A. $6,000
B. $630
C. ($300)
D. $1200

Solution Summary

The solution explains some multiple choice questions in managerial accounting